With values skyrocketing, when is mortgage insurance required?
Ray, one of my followers, recently asked: "I'm getting ready to close on a home with a purchase price of $650,000 with 10% down. The property appraised for $790,000. Can the lender get rid of PMI? What are the pros for having a higher appraisal?"
The answer is no; they cannot get rid of the PMI (private mortgage insurance). Your loan-to-value rate for loan purposes is based on the lesser value, either purchase price or appraised value. In this instance, it's the purchase price. Since you put 10% down, you're at a 90% loan-to-value rate, so you have to pay private mortgage insurance.
After six months, you can get a new loan using the new appraised value.
So when can you get rid of it? Since your appraisal came in high, you can get a new loan using the appraised value after six months. Fannie Mae and Freddie Mac’s guidelines for primary loans with no mortgage insurance go off of the sales price in the first six months, but after that, we can use the appraised value and get rid of mortgage insurance. So make sure you're getting a lender credit to cover almost all of your closing costs because you'll be looking at refinancing in six months.
If you have questions about this topic or any other real estate matter, call or email me. I would love to help you.